The taxman is finally starting to catch up with super-wealthy hedge-fund managers, the secretive financiers whose deals and riches have been the talk of the City for the past few years. Inland Revenue inspectors have stepped up their visits to Mayfair (in London's West End), beating heart of the hedge-fund sector, demanding details about the funds' tax arrangements.

Assets in UK-based hedge funds of this type, which are not heavily regulated and have a tendency to specialise in derivative investments, total $130bn as of late-2006. The funds have mostly added to the wealth of their already super-rich clients - and those running hedge funds have become hugely wealthy themselves, thanks to the 20 per cut they take from all profits.

The Wall Street Journal reported that one of London's largest hedge funds - GLG Partners - with more than $16bn under management, has undergone a Revenue investigation into its 2001-2006 tax affairs. The firm is thought not to have admitted liability.

GLG has had difficulties with the UK authorities before: earlier in 2006, the Financial Services Authority hit its star trader, Philippe Jabre, with a £750,000 fine for market abuse. The Revenue is looking further afield, however, and examining the practices of the entire London-based industry, which represents around 10 per cent of the world's total hedge-fund industry. Funding of hedge funds is one area that they are thought to be investigating.

Of course, hedge fund managers are perfectly aware of corporate risk analysis and deal with this day in, day out during the course of their high-flying careers. They assess which investments to make by using a combination of common sense and hedge fund analytics software, which makes it easier to track investments. Relying too heavily on risk model software is dangerous though: some investors have famously backed stocks without applying lateral thinking, leading to millions of pounds of losses for clients.

Of particular interest to the Inland Revenue is the way some hedge funds have used their offshore operations, and whether they are illegally channelling revenues through low-tax places like the Cayman Islands to reduce their UK tax bills. Hedge funds, like investment banks, have also been affected by a Revenue crackdown on 'double-contracts' and other techniques that were previously used to avoid tax on the multi-million dollar payouts made to top-performing employees.

Banking software can help those in positions of influence stay on the right side of both the law and the Inland Revenue. Anyone interested in enterprise risk, or credit risk models, for example, can use the software provided by international firm APT, who specialise in producing financial applications to help with pension fund risk analysis, among other sectors.

Other areas of expertise for APT include portfolio analytics software and risk databases, both of which are useful tools for anyone involved in optimising portfolios and quantifying corporate risk.